Posts tagged with: International Trade

Fertile Ground for Farm Subsidy Cuts

By Elise Amyx

With debt and budget negotiations in gridlock, and a growing consensus that federal spending at current levels is unsustainable, political support for farm subsidies is waning fast. What’s more, high crop prices and clear injustices are building bipartisan support for significantly cutting agricultural subsidies in the 2012 Farm Bill.

The New Deal introduced an enormous number of agriculture subsidy programs paved with good intentions to help struggling farmers, create a stable food market and alleviate poverty. While many other industries have been deregulated since the Depression-era reforms, agricultural subsidies have grown. Now considered by some to be America’s largest corporate welfare program, it is obvious that the government has failed to meet its original goals.

The glaring injustices built into farm subsidy policies explain why so many on both the political right and left routinely describe them as immoral. Subsidies reward large commercial enterprises — in good times and bad — and shut out small farmers. Developing countries that desperately need to boost agricultural exports cannot compete with subsidized, over-produced crops from wealthy nations. Subsidies also drive up the cost of food for the poor and working families.

Iowa farmer Mark W. Leonard, in a 2006 Wall Street Journal interview, described how he brought a farmer from Mali to talk to local church gatherings about the adverse effects of subsidies. “From a Christian standpoint, what it is doing to Africa tugs at your heartstrings,” he said. The bottom line is that the large, commercial farmers win and everyone else loses.

Rural communities dependent on farming seem to have the long end of the stick, but this isn’t true. According to an Iowa State University study, the most highly subsidized areas in the United States are seeing little to no economic growth. In counties where farm payments are the biggest share of income, job creation is very weak. This can possibly be attributed to highly subsidized agribusiness buy outs of family farms. It is ironic that farm payments are intended to foster growth but instead they appear to be linked with subpar economic performance.

Though meant to support the incomes of farmers and promote rural economic growth, subsidies are making rich farmers richer. Subsidies don’t usually end up where they are most needed because the top 10 percent of recipients receives 74 percent of the payments. Instead of helping those most in need, farm payments are just another failed government welfare program.

Agricultural subsidy programs are funded by taxpayers’ dollars and end up raising the cost of food for the domestic consumer. In other words, we are paying for subsidies twice over. Even though price supports are intended to stabilize food production and thus prevent wild price swings, a Heritage Foundation research report found that consumers actually end up spending more on food in the long run when all price distorting effects are considered. Commodity subsidies encourage overproduction and lower prices, but the Conservation Reserve Program encourages underproduction and raises prices. Tariffs raise the price of imported food. For example, the sugar program operates as a cartel by controlling prices and limiting imports, which significantly raises the cost of sugar.

It is poor budgetary stewardship on the government’s behalf to fund a program with taxpayer dollars that makes food more expensive for consumers. According to the Heritage Foundation, the Organisation for Economic Co-operation and Development estimates the average household spent “$216 in annual taxes in addition to $104 in higher food prices.”

Subsidy payments are commodity specific, so unless you’re growing corn, wheat, soybeans, or another subsidized crop, you’re on your own. Jack Thurston, co-founder of FarmSubsidy.org told Time Business, “The bigger you are, the more subsidies you get. It is the reverse of what you think a subsidy is.”

Because farm payments often encourage overproduction and consolidation of agribusinesses, the price of land is inflated, which makes it very difficult for would-be farmers to enter the market. Rather than giving them a fair opportunity, subsidies undermine the entrepreneurial spirit of young domestic farmers.

Commodity price supports, export subsidies and tariffs drive commodity prices below the world price, which makes it difficult for foreign countries to compete. Surpluses of overproduced U.S. crops are dumped on the international market at prices well below the cost of production, creating even more price volatility. Many poor nations have few other options outside of subsistence farming. Subsidies keep poor nations poor and dependent on developed countries.

There is no doubt that farming is a difficult, volatile business filled with risk and uncertainty — and so are many other successful industries that do not receive any government hand outs. Farmers receiving payments should be careful not to view the government as a savior, who will reduce risk, create certainty and save the day if something bad happens. This is a dangerously dependent position to be in, and it is morally problematic when it comes at the expense of everyone else.

A farmer from Mississippi by the name of Lanier, in a recent call in to NPR, said he doesn’t need the government to help him run his business: “I’m not going to be very popular with this comment, but my family has farmed [6,000] to 8,000 acres every year. We own about five of that and lease the rest depending on what we think the market conditions will be. But, quite frankly, we don’t need these subsidies … we being the larger farmers; we’re getting paid seven digits to not farm areas of our farm. That’s ludicrous. […] We cry, hey, it’s a risk. But tell me what business there is out there that doesn’t have a risk.”

Agricultural subsidies make little economic sense and they display many of the problems that characterize other large welfare programs: injustice, dependency and a slew of unintended consequences.

But, good news might be just around the corner. Recent reports suggest agricultural subsidies will see drastic cuts in the upcoming farm bill due to high commodity prices and the budget crisis. Americans should be cautiously optimistic that America’s largest corporate welfare program will take a big hit in 2012.

Warsaw, Poland (ENInews)–A senior ecumenist has welcomed growing co-operation between leaders of European institutions and churches, and predicted a growing advisory role for religious communities.

“I think we’re seeing a greater openness today than ever before,” said Rudiger Noll, director of the Church and Society Commission of the Conference of European Churches (CEC). “Our latest meeting was triggered by the Arab uprisings and European response, and by Europe’s financial and economic crisis, and in both areas the institution presidents were very clear. What’s needed is a new value-based, community approach in Europe, rather than just an economic system. They’re turning to the churches for this.”

The United Church of Westphalia pastor was speaking after a Brussels meeting on 30 May between 20 religious leaders and the Portuguese president of the European Union’s governing commission, Jose Manuel Barroso, as well as the European Council’s Belgian president, Herman van Rompuy, and the Polish president of the European Parliament, Jerzy Buzek.

In an ENInews interview on 30 May, he said religious leaders now had regular “institutionalized meetings” with senior European officials, including the EU’s rotating presidency, and “dialogue seminars” on issues of common concern, in line with Article 17 of the EU’s 2008 Lisbon Treaty, which guarantees churches an “open, transparent and regular dialogue” with EU institutions. However, he added that church leaders also hoped to strengthen the structural contacts with a “deeper culture of dialogue.”

“EU leaders have said they didn’t need the Lisbon Treaty to have a relationship with us,” said Noll, whose organization, founded in 1959, groups 125 Orthodox, Protestant, Anglican and Old Catholic churches, and 40 associated organizations.

“Although it would be naive to believe all our member-churches speak the same language, we should at least singing, at the end of the day, from the same hymn sheet – playing different instruments, but making up a single orchestra.”

In his address to the annual meeting, the religious leaders’ seventh with European institution presidents, CEC’s Orthodox president, Metropolitan Emmanuel of France, said the world of faith could “prove a powerful ally in efforts to address issues of democratic rights and liberties.”

A 30 May CEC press release said the mostly Orthodox and Protestant representatives had reiterated their commitment to promote “the rights of minorities and migrants, economic justice, participation, solidarity, freedom of speech and expression as well as religious freedom.”

The meeting followed a 25-28 May annual plenary of CEC’s Church and Society Commission in Brussels, which was attended by religious affairs specialists from the EU’s European External Action Service, Bureau of European Policy Advisors and European Parliament presidency.

A 27 May CEC statement said the commission had agreed to finalize a human rights training manual for European churches and join the Sunday Alliance network, adding that member-churches were committed to operating as “responsible and competent partners for the European institutions,” while seeking to “speak with a common voice and make sure this voice is heard.”

The inclusion of the Church and Society Commission on a new EU Transparency Register, requiring companies and organizations lobbying the EU to have their activities publicly recorded, would “allow for regular and non-bureaucratic exchanges to complement the formal dialogue process,” the statement said.

In his ENI interview, Rudiger Noll said the current openness to churches and faiths was a “common sentiment among EU officials,” but added that CEC also counted on the appointment of a “permanent facilitator” in the 736-seat European Parliament, to ensure dialogue was maintained during an upcoming change of leadership from the center-right European People’s Party to the Progressive Alliance of Socialists and Democrats.

“When it comes to relations with the institutions, the churches are always surprised to see how much they have in common–the context in which we live is much more important than any theological or confessional divergences,” the CEC Commission director told ENInews.

it has the potential to reshape patterns of international trade if it chooses. The United States throughout the 20th century, the second half in particular, has operated under the principle of a free-trade regime in which its Navy was primarily used to facilitate international trade. It did not seek to develop any special advantage from that, save those sanctions and blockades that we occasionally imposed for immediate political purpose.

He concludes, however, “there is no reason to believe, with that enormous power, in the 21st century that the United States won’t choose to reshape international trade if it finds itself under extreme economic or political pressure.”

In pointing out the possibility for the United States to pursue trade policy that is at odds with “the principle of a free-trade regime,” Friedman also notes the definition of so-called “soft” power: “Power that isn’t exercised.”

As a side note, one way of construing this definition of soft power correlates quite nicely with the reception of the traditional scholastic distinction between absolute and ordained power, potentia absoluta et ordinata. With regard to God’s power, the older, traditional view of the distinction held that the absolute power of God referred to the contingency of the created order, insofar as God could have created, willed, and concurred in things differently (i.e. a different world order). Things could have been different based on a different divine ordering or decree.

This older view did not hold that the absolute power of God was an active reality in this created order but rather a hypothetical possibility standing behind the creation of this world. But in the high to late middle ages another version of the distinction arose, which argued that the absolute power of God exists as an active possibility residing in and with the current created order. This “operationalized” view of the absolute power of God held that God not only could have made things differently, but also that he has an active power that can overrule or act outside of what he has ordained. (We should note that this “absolute power,” when applied to magistrates, is that to which Lord Acton refers in his famous quote appearing as the subhead of this blog.)

A brief illustration might serve to communicate the difference in these two views of absolute power. Under the former conception, the “absolute power” of the United States government would refer to those powers that could have been granted by the Constitution but for whatever reason were not. Bracketing the possibility of changing the Constitution, these powers are no longer real possibilities. Under the revisionist and operationalized conception, the Constitution would describe the way things normally or ordinarily work, but the President or Congress could act “absolutely” without regard to the constraints of the Constitutional order.

We might also note that this definition of soft power is one that defines “power” essentially as coercion, with the “softness” of the power being the implied threat rather than the “hardness” of actual use. Friedman’s kind of soft power is that which gives nuclear deterrence its only viability. As American ethicist Paul Ramsey has written,

The actuality of deterrence depends upon a credible belief, mutually shared, that one might use a nuclear weapon. If the government of one of the great powers were persuaded by the churches never to be willing to use any nuclear weapon under any circumstances, and this were known, there would be instantly no deterrence and therefore no practical problem of finding a way out. Likewise, the morality of deterrence depends upon it not being wholly immoral for a government ever to use an atomic weapon under any circumstances.

(Towards the end of the video a questioner rightly challenges Friedman’s definition of soft power, noting in its original context it didn’t necessarily depend on the implied threat of coercive force.)

Friedman notes that soft power, “what you could do that you don’t do,” doesn’t corrupt, but instead “gives you the opportunity to be gracious, friendly, and pleasant.” For Friedman, America’s gracious continuation of free-trade policy represents a clear case of soft power.

There’s a real sense in which he’s right, but only to the extent that America would suffer relatively less economically than other nations through the pursuit of isolationist policies. As Spengler notes in the context of the current global crisis, “Although Russia has taken on water in the crisis, its position relative to its former satellites has actually strengthened.” Friedman’s assumptions about the trump card that America holds in the possibility of reversing free-trade policies assumes that the economic power of the United States would in a similar way be relatively strengthened, and that the economic consequences will disproportionately affect America’s trading partners. But has America’s relative economic strength actually improved already in the midst of the global economic crisis?

while Russia’s financial sector may be getting torn apart, the state does not really count on that sector for domestic cohesion or stability, or for projecting power abroad. Russia knows it lacks a good track record financially, so it depends on — and has shored up where it can — six other pillars to maintain its (self-proclaimed) place as a major international player. The current financial crisis would crush the last five pillars for any other state, but in Russia, it has only served to strengthen these bases. Over the past few years, there was a certain window of opportunity for Russia to resurge while Washington was preoccupied with wars in Iraq and Afghanistan. This window has been kept open longer by the West’s lack of worry over the Russian resurgence given the financial crisis. But others closer to the Russian border understand that Moscow has many tools more potent than finance with which to continue reasserting itself.

Besides the US, Friedman opines that Japan, Turkey, and Poland (because it “faces Russia”) will be the major players in the 21st century. But with regard to the fallout of the economic crisis, Spengler summarizes convincingly, “There are no winners, but losing the least is the next best thing to winning. If America turns inward, even an economically damaged Russia will loom larger in the world.”

In any period of economic transition there are upheavals at various levels, and winners and losers (at least in the short term). We live in just such an age today in North America, as we move from an industrial to a post-industrial information and service economy, from isolationism to increased globalization. There’s no doubt that there have been some industries and regions that have been more directly affected than others (both positively and negatively).

Michigan, for example, has been one of the most manufacturing-rich states in the nation for the last century, and has been running record unemployment numbers for the last decade or so, as manufacturers move to more friendly economic environments, both within the US and without. Not least of these factors contributing to Michigan’s competitive disadvantage is the high labor costs associated with a labor union-laden state.

The perception that manufacturing workers are simply being left behind in the new economy is pervasive, such that popular opinion is shifting away from free trade. As Fortune magazine reports, “A large majority – 68% – of those surveyed in a new Fortune poll says America’s trading partners are benefiting the most from free trade, not the U.S. That sense of victimhood is changing America’s attitude about doing business with the world.”

As an aside, this is a perception that doesn’t quite match up with the typical caricature of globalization. After all, how can both America (as the “imperial” dominator) and the developing world (as the exploited poor) both be made worse off by international trade?

If it were truly the case that global trade weren’t mutually beneficial, that would be one thing. What’s visible on news reports everyday are the layoffs, buyouts, and unemployment levels in the US. What isn’t always so visible is the extent to which Americans depend on the low prices associated with many imported goods. One group you might think should know better than the average American about such complexities are professional economists. (more…)

Costa Rica’s voters ratified the Central American Free Trade Agreement, a sign of hope against a rising tide of populist, anti-trade sentiment in Latin America — and the United States. “In short, this is not the time for Latin America to abandon free trade agendas,” Gregg says.

Globalization and free trade are the causes of a new class of worldwide slavery, say the ecumenical officials. Citing the foundational 2004 Accra Confession, Rev. Clifton Kirkpatrick, the president of the World Alliance of Reformed Churches, says that “an even more pernicious form of human enslavement is being wrought on millions through the process of neoliberal globalisation that is driving a dramatic and growing wedge between the rich and the poor.”

Port of Spain (ENI). The World Alliance of Reformed Churches has agreed to unite with the Reformed Ecumenical Council to create a new “global entity” that will group 80 million Reformed Christians. “This is a truly, truly important moment,” said WARC president the Rev. Clifton Kirkpatrick after the alliance’s executive committee, meeting in Trinidad, voted unanimously on 22 October to unite with the REC, whose executive committee had agreed to the proposal in March. The Geneva-based WARC has 75 million members in 214 churches in 107 countries, while the Grand Rapids, Michigan-headquartered REC has 12 million members belonging to 39 churches in 25 countries. Of the REC’s member churches, 27 also belong to WARC. [ENI-07-0815]

It’s not clear at this time if the conditions laid out in 2005 are those under which the union has taken place. This merger is significant in many ways, not least of which is the requirement of the Church Order of the Christian Reformed Church that its Synod “shall send delegates to Reformed ecumenical synods in which the Christian Reformed Church cooperates with other denominations which confess and maintain the Reformed faith” (Article 50). Citing Calvin once in awhile and promulgating platitudes about the sovereignty of God doesn’t mean you are Reformed.

In response to concerns from member churches from the global North that the Accra Confession is not sufficiently doctrinal, Rev. Setri Nyomi responds, “The Reformed family recognises the sovereignty of God … We do not separate whether God is sovereign in the mundane and in the spiritual realm. Therefore our stance on social issues is consistent with the doctrinal claim of sovereignty.”

Quite frankly the WARC leaderships rhetoric about income and wealth disparity as a “more pernicious form of human enslavement” is offensive on a number of levels besides its doctrinal spuriousness. It’s offensive to those who actually are slaves today (sex trafficking is a huge global issue). And it’s insulting to those whose historical legacy involves victimization by the practice of chattel slavery.

WARC is more than happy to talk about “slavery” in material terms, identifying anything other than complete egalitarianism with injustice and bondage. But the one kind of slavery you won’t hear WARC discuss is the sense in which it is put forward most prominently in the Scriptures: bondage to corruption and sin in a personally and individually relevant way.

When Christ said, “if the Son sets you free, you will be free indeed,” he didn’t have globalization in mind.

In answer to the query in the headline of this week’s Acton Commentary, “Who’s Afraid of Free Trade?”, I submit the following: the ecumenical movement. Note the following news item from Ecumenical News International:

Geneva (ENI). Faith groups have joined activists around the globe in calling for fair, equitable and just trade policies while urging churches to join a Trade Week of Action that seeks to promote alternatives to the global system of commerce. “During this week, the churches and other organizations will tell the world that enforced free trade is causing poverty and that there are viable alternatives,” said Linda Hartke, coordinator of the Geneva-based Ecumenical Advocacy Alliance, which has organized the 14-21 October Trade Week of Action. “When the systems we have created to buy, sell and share goods cause hunger and suffering then these systems are wrong. Every voice counts, and every action makes a difference,” Hartke told Ecumenical News International. [ENI-07-0798]

Society is changing as economic freedom and diversification gradually creep into the Middle East. Dr. Samuel Gregg, director of research at the Acton Institute, explores the effects of free trade on nations including Kuwait, Bahrain, Qatar, and the United Arab Emirates and, in turn, the effect those nations are having on their neighbors.

The diversification of economies, notably the development of new products and services for export, allows nations to grow out of reliance on oil production as the main source of capital. The emerging economies create an entrepreneurial atmosphere open to all and encourages foreign investment. The result is a rise out of poverty and more open foreign relations.

And how does this affect coffee supply? If a premium is available for fair-trade coffee, shouldn’t other growers enter the market to take advantage of it until the price of coffee is bid down to market levels, leaving total producer take–baseline coffee price plus premium–where it stood before? Such a scenario would also raise distributional questions. If higher coffee prices attract market entrants, then coffee-growing nations will shift resources into that sector, which might be good for grower incomes, but could potentially inhibit the development of other economic activities.

Not to take anything away from the stated goals of the fair-trade movement or the well-meaning consumers who wish to do better by farmers in poor countries. Still, in any economic process, it’s often difficult to foresee the second- and third-order effects of a decision. It will be interesting to observe how growth in fair-trade products changes the structure of markets for targeted commodities.

These sorts of questions and concerns are at the heart of my past criticisms of the fair trade movement.

To the extent that fair trade certifiers are simply acting as agents to inform consumers and guarantee certain practices, to which coffee buyers can freely respond either affirmatively or negatively, there’s no real complaint. Fair trade becomes a boutique item that has to compete in the free marketplace.

But to the extent that the fair trade movement reflects a more thoroughgoing critique of market forces and the “fairness” or justice of market prices, it becomes more problematic. It becomes an entirely different paradigmatic alternative to a system of free trade.

You’ve essentially replaced market prices with arbitrarily determined prices, which are subjectively determined to be “fair.” Compare this with the traditional and classic scholastic understanding of a “just” price as the market value in the absence of any and all fraud and conspiracy.

The Free Exchange blog piece points out all sorts of negative consequences of the change from “just” to “fair” prices, not least of which is the increasing saturation of an already saturated market because of artificial subsidization of a particular commodity. Furthermore, it’s hard to see how it makes good economic and environmental stewardship to subsidize and promote the growth and production of a commodity of which we already have too much.

Les Picker summarizes the findings, “Not surprisingly, the entry of many developing countries into the world market in the last three decades coincides with changes in various measures of inequality in these countries. What is more surprising is that the distributional changes went in the opposite direction from what the conventional wisdom suggests: while trade liberalization was expected to help the less skilled, who are presumed to be the relatively abundant factor in developing countries, there is overwhelming evidence that they are generally not made better off relative to workers with higher skill or education levels.”

There’s a lot more here to digest and the article has some predictably necessary nuances and caveats, not least of which concerns the problematic elements of trying to find a causal link between temporally related phenomena: “The authors’ findings suggest a contemporaneous increase in various measures of globalization and inequality in most developing countries, although establishing a causal link between these two trends has proven more challenging. However, the evidence has provided little support for the conventional wisdom that trade openness in developing countries would favor the less fortunate.”

It’s one thing to say that globalization proportionally rewards more highly educated and skilled workers relative to less educated and skilled workers. This by itself is not obviously unjust, and indeed, it seems to pass a basic sense of justice that jobs that require more skills and training ought to command a higher wage. Maybe a system that distributes more unevenly according to a measure of merit such as education or skill-level is more just than another system which is more equitable in purely distributive terms.

That said, it’s quite another thing to say that low-skilled workers are not made better off in absolute terms by globalization. I’m inclined to think that we shouldn’t be so concerned about relative disparities as we are by comparing in absolute terms the state of the working poor under systems of liberal versus illiberal trade.

If the working poor are better off under a liberal trade regime than an illiberal one, and higher educated workers are paid relatively more, there is a simultaneous increase in the poor’s immediate economic prospects as well as a relative increase in the economic incentive to improve their skills.

But his latter point only is effective in a situation where labor mobility is a real option, and as the NBER paper points out, “the strict labor market regulation that many developing countries had in place prior to the recent reforms is a potential source of labor market rigidities.”

So, for the promise of globalization to be realized, trade not only needs to be liberalized, but so does labor. Workers need to be free to move between sectors, both within and without national boundaries. As I’ve argued before in another context, we need both free trade and free labor.